Clark Likes SDRS Ban on Social Investment, But Doesn’t Want Further ESG Restrictions

Matt Clark has done good work protecting and growing the retirement savings of thousands of South Dakotans who have the privilege of belonging to the South Dakota Retirement System. Yesterday South Dakota’s chief investment officer told the Legislature’s Executive Board that he proudly follows the ban on social investment that South Dakota enacted in 2010:

Environmental, social and governance (ESG) considerations in investing have grown controversial in recent years, as environmental and social activist groups have pressured the leaders of publicly traded companies to look beyond immediate financial returns when making business decisions.

…The ESG comments came after those items of official business. Clark offered his thoughts on ESG investments at the prompting of Rep. Will Mortenson, R-Pierre.

“We’ve seen kind of a rash of environment, social and governance policy legislation that has come through,” Mortenson said. “Are those firms you target? Are they firms you avoid? Do you not care?”

Clark’s team “only cares about the bottom line” when buying securities, he said. His investment managers are legally barred from considering anything else. South Dakota passed a prohibition on the consideration of social factors in stock purchases back in 2010 — more than a decade before the current wave of anti-ESG legislation began to take shape.

“I always point with pride to the fact that South Dakota was the first state to advance this,” Clark said. “We do not take into account those kinds of issues” [John Hult, “State Investment Manager Argues Against Ban on ‘Green’ Investments,” South Dakota Searchlight, 2023.05.19].

The ban on social investing to which Clark refers is 2010 Senate Bill 21, which passed unanimously in both chambers and now resides in SDCL 3-12C-223. That bill defined “social investment” as “investment, divestment, or prohibition of investment of the assets of the system for purposes other than maximum risk-adjusted investment return, which other purposes include ideological purposes, environmental purposes, political purposes, religious purposes, or purposes of local or regional economic development”. However, 2010 SB 21 left room for SDRS to make investments for political purposes like divesting from companies that boycott Israel or that do business with evil empires.

Clark himself is no ESG absolutist:

The governance portion of ESG is something the state does consider, Clark said, because “we always want good governance” from leaders of its investment targets. The environmental and social factors are a different story, he said, which is part of the reason he backed and still supports the 2010 law’s prohibition on investment decisions based on those factors.

“The ‘E’ and the ‘S’ part we think are counterproductive, harm investment results long-term, and they tend to cause you to be the recipient of political pressure,” Clark said [Hult, 2023.05.19].

…and he warned legislators that stopping SDRS from investing in companies that attract ESG investors could cut off opportunities to maximize our pension dollars:

Some ESG-favored companies are solid investments, Clark said. Electric carmaker Tesla, for example, is a company that would count as ESG friendly by some metrics, but it’s also a company that has boosted the state’s retirement funds.

If the state invests in a “green” company, Clark said, it’s because those companies yield green in the form of returns.

“We’ll buy cigarette companies. We own a lot of coal companies. Coal companies have been some of our favorite investments. And we’ll own Tesla at times,” Clark said. “It’s strictly on the basis of the present value of future cash flows and the risk assignment to those cash flows” [Hult, 2023.05.19].

As Clark told the Executive Board, his people will buy anything at the right price, “including a pile of manure.” And he’s inclined to watch for ponies around the piles of manure that he said ESG investors may make:

In fact, Clark said, ESG buying can be a benefit for South Dakotans. If ESG-minded investors overbuy a stock and the price plummets, that gives the state an opportunity to buy that stock at a lower price and cash in later on [Hult, 2023.05.19].

Clark isn’t interested in saving the planet; he just wants to grow South Dakotans’ pension dollars, and he doesn’t want anyone’s political agenda to get in the way of carrying out that narrow mission.